Developers and buyers all want to know the impact on the property market of the 197-kilometre mass transit lines under construction in Bangkok.

These new infrastructure developments, in addition to the 110km of existing mass transit lines, will improve access to and from inner city areas and link midtown areas.

This will affect the property market, especially the residential market. The popularity of each line can be seen from its ridership, as well as the number and prices of residential units along the line. These factors show not all lines are equal.

Currently, the BTS Light Green Line, with 750,000 passengers per day, has seen the most developments of residential, office, retail, and hotel properties.

It is followed by the MRT Blue Line, with 350,000 passengers per day, where developments have been concentrated along Ratchadaphisek road.

For the MRT Purple Line, many condominiums were launched during its construction with high expectations. However, with currently only 51,000 passengers per day, it will be less attractive for developers to invest further in projects along the line until the passenger numbers improve.

Residential developers are also acquiring land plots before the completion of the new lines under construction. Speculative residential property buyers are willing to purchase soon after construction starts on the lines.

End-user buyers who represent real demand only make decisions when they see there is significant progress on the lines and the projects they are planning to buy can be completed about the same time the line becomes operational. Many end users need the line to be operating before they decide to live in the property.

By recording and combining transactions into a de-centralized, secure ledger system, it creates a “chain” of chronological data that no one party has control of.

The value lies in the system’s ability to authenticate and track transactions in real time without the use of a third party, such as a bank. The technology has the potential to transform the property business. The potential shake-up would significantly speed up transactions and increase transparency.

“People are brainstorming new ways of using it so that they fall on the right side of this business disruption,” according to the DBRS research report How Blockchain Technology Is Rebuilding the Commercial Real Estate Industry.

Smarter, more transparent One of the biggest impacts of Blockchain on commercial real estate would be a smoother, faster contract management process that expedites deals. With smart contracts, every part of a lease or sale agreement is automated, and payments are received instantly – even outside of business hours.

Blockchain would make it possible to “create, authenticate and audit contracts in real-time, across the world and without intervention from a middle man,” said Nick Clare, Head of Project Management, JLL UK. Smart contracts “have instructions rooted in the transaction so that payment can only be taken as long as the instructions are fulfilled, providing complete transparency to all parties and reducing the likelihood of payment disputes.”

Smart contracts

Smart contracts would also speed up pre-lease due diligence. Blockchain technology can help verify identities, making the background check process faster.

Parties involved in a contract can access it with a personal digital key, arguably reducing the likelihood of fraud. In the industrial and logistics sector particularly, Blockchain’s transparency could be of benefit to investors and occupiers alike, said Aaron Ahlburn, Director JLL Industrial Research. As corporations have expanded globally, supply chains have become longer and more complex—and the challenge of tracking inventory has become acute.

“With one-day delivery becoming the new normal, e-commerce and retail firms would benefit as the technology greatly improves the traceability of products, help bring down costs by reducing excess inventory.

Over the long term, this could add real value to the retail, logistics and distribution sectors, which are handling heavy volumes of transaction data on a daily basis,” Ahlburn said.

Liquidity For investors under pressure

Liquidity For investors under pressure to create a diversified portfolio, liquidizing assets can be difficult. Blockchain technology has the potential to ease this process if all investments are registered through the ledger, simplifying the exchange of shares between investors.

San Diego-based real estate investment and merchant bank, Silver Portal Capital LLC, made one of the first attempts to capitalise on the opportunity when they partnered with New York electronic trading and technology provider, Fundamental Interactions Inc., last year to launch Silver Portal Markets.

The secondary market will reshape the historically dislocated network of real estate sponsors, inter-dealer brokers, and registered investment advisers into a dynamic and competitive trading marketplace, according to the company. “This will allow sponsors to raise capital more efficiently and cost effectively, and ultimately create liquidity for new issuers on the platform,” he said.

Land titles a further attraction of blockchain technology is its use in recording land titles – a historically challenging area to access with most information still kept offline.

The technology has the potential to dramatically cut the traditionally lengthy process of recording and transferring titles, with the added benefit of virtually bullet-proof transparency. And more and more governments are looking to apply the secure ledger as a way to store and easily access historical title records.

The UK government has recently announced plans to move the country’s land registry to blockchain by 2022, under the project name ‘Digital Street’, while Sweden, Ukraine, Dubai and The Republic of Georgia are all reportedly trialing the technology.

As with any new technology, Blockchain has its critics. Questions over the technology’s security and reliability have been raised, as well as the issue of human error; when used as a database, the information being inputted needs to be recorded accurately in the first place.

Compared to the other six countries from Southeast Asia covered by the Index, Thailand is ranked the 3rd most transparent real estate market in the sub region followed by Indonesia, Philippines, Vietnam and Myanmar that were ranked globally 42nd, 48th, 61st and 73rd respectively.

This 10th edition of the Global Real Estate Transparency Index (GRETI) contains the most comprehensive country comparisons of data availability, governance, transaction processes, property rights and the regulatory/legal environment around the world.

The 2018 Index covers 100 countries and 158 city markets, and the number of individual factors covered has increased by 36% to 186 factors.

Mrs. Suphin Mechuchep, Managing Director of JLL, says “Transparency across Thailand’s real estate markets has continuously improved over the last decade thanks largely to increased availability of and access to market data. While the growth of listed companies and real estate investment vehicles has contributed a lot to improving financial disclosures, greater regulatory enforcement, the planned introduction of a new property tax system and steps to digitise its land registry will underpin the country’s improvement in real estate transparency further.”

Biggest improvements in Asia Pacific

“Asia Pacific as a whole has made the strongest transparency improvements since 2016 compared to the other four regions covered by the study,” says Dr Megan Walters, Head of Research, Asia Pacific at JLL.

“This is supported by developments in Myanmar, Macau, Thailand, India and South Korea.”
Myanmar has registered the most significant improvement globally, moving up 15 places to join the ‘Low Transparency’ group.

According to the report, the country continues to open up its economy as increasing investor demand translates into greater market intelligence.

For the first time, South Korea has nudged into the ‘Transparent’ tier, with heightened investor activity pushing improvements in data coverage and a new carbon emissions trading scheme.

Macau has also advanced with a focus on anti-money laundering, resulting in increased monitoring by financial regulators

Dr Walters adds: “It’s also worth noting that India’s reform-driven government has made significant progress in its agenda to improve transparency and reduce corruption. The Real Estate Regulatory Act, which was passed in 2016 and implemented in 2017, is a regional highlight. The country joins China, Indonesia and Thailand at the top end of the ‘Semi-Transparent’ tier.”

Asia Pacific shows fastest progress in real estate transparency

Asia Pacific’s mature economies such as Singapore, Hong Kong and Japan, have a significant opportunity to advance real estate transparency through proptech adoption. These leading investment destinations are on the cusp of the ‘Highly Transparent’ tier, and are poised to join the top group, which includes countries such as Australia, New Zealand, the U.S. and the UK.

“We believe the Singapore government could play a key role in promoting proptech adoption through open-data initiatives and the pioneering of blockchain technology.”

“The potential benefits of proptech are certainly not limited to transparent markets,” he adds. “It could also help improve transparency in semi-transparent markets like China, which has a vibrant proptech sector, and where traditional data sources are lacking.”

Another key area of potential improvement for both Singapore and Hong Kong is in sustainability transparency. Strengthening energy efficiency requirements, carbon reporting and stricter energy consumption disclosure will help them make the step up; and in this regard, they could emulate Japan, which has become a global leader in sustainability transparency.

Advancing sustainability

Progress has been made on sustainability transparency across the region. South Korea introduced a carbon emissions trading scheme; meanwhile Vietnam established its own market-specific Green Building Certification System several years ago and is implementing mandatory minimum energy efficiency standards for all new buildings and major retrofits.
Improvements in transparency in some Asian countries have been accompanied by record-breaking commercial real estate investment volumes.

In 2017, real estate transactions in the Asia Pacific region reached a record US$149 billion.

Property developers across Thailand are experiencing are increasingly attracted by hotel branded residences in order to spur price premium points and buyer demand.

Currently there are 29 new hotel residence projects countrywide with nearly 90% of these located in resort areas.

New research by consulting group C9 Hotelworks has pinpointed that the top 3 locations for completed and pipeline projects in their Southeast Asia Hotel Residences Market Trends report are Phuket (26 properties), Pattaya (10 properties) and Bangkok (9 properties).

With nearly 100 mainstream hotel residence projects and over 21,000 units completed, the next three years will see sector boldly expanding into new territory.

The reports states that between 2018 and 2020 new completed units will represent a massive 83% increase over existing supply.

Viewing how Thailand ranks in terms of competitiveness in the sector, with 41 completed projects to date, this accounts for 41% of the regions supply that stands at over 21,000 hotel residence units.

The country ranks first in Southeast Asia as an urban trend is shifting back to resort areas. Indonesia follows, whilst the rising star is Vietnam with Danang featured as a favored developer’s marketplace.

In Thailand, Phuket with 13 completed projects and another 13 in the works has a longstanding legacy of hospitality-led residences in such well-known ultra-luxury resorts as Amanpuri, Banyan Tree and Sri Panwa.

Though over the past few years Bangkok’s Chao Phraya River with marquee branded projects affiliated to the likes of global icons Four Seasons and Mandarin Oriental have pushed prices though the glass ceiling to an average of more than THB315,000 per square meter, while the national average selling price in the sector is just over THB101,000.

Linking the connection to brands and pricing premiums, C9 research across all the markets in the country show a demonstrated brand premium between 15-20%. Taking a close look at existing supply 92% of the supply are brand affiliated and we expect this preference by developers and property buyers to continue.

Brand, intellectual property and real estate will be the key stores of wealth in the future. The question for investors is where and what to buy to store wealth for the next 10 years.

Rana Foroohar, from the Financial Times, gave that insight in her keynote speech at the ANREV conference late last year, causing a happy stir in the audience. Institutional investors in real estate are well placed to provide a home for savings and incomes in the future.

In a world where the real US 10-year government bonds rates have delivered roughly 1% per annum over the last 10 years, Asia Pacific office total returns have averaged 9.6% per annum over the same period. Although not directly comparable, it is pretty compelling.

The question for investors is where and what to buy to store wealth for the next 10 years.

At the start of 2018 we are observing a globalised economic recovery with all three regions growing. This year we should start to see a quickening of interest rate rises to a more normal nominal level following the global financial crisis.

However, interest rates are part of a longer global downward trajectory for which there are mixed opinions as to the cause[1].

Regardless of this 30-year cycle, central banks are signalling that rates may rise should inflation take hold. The potential for inflation to lift as growth continues means that even as nominal levels rise, the level of real rates is likely to be much lower than pre-GCF.

Low real rates and the prospect of inflation will continue to see investors allocate to real estate, either towards 10% of their portfolios or even greater for those well-versed in real estate investment.

Here are some of the longer term secular shifts to watch in 2018 that will influence how real estate performs as a long-term store of wealth:

Winning cities with long-term demand for real estate

The cities with long-term demand for real estate and those with technology-based occupiers win as other tech occupiers co-locate to attract talent. Migration to winning cities will continue to be a global phenomenon.

No wonder, then, that there is a battle to host Amazon’s next HQ, given the spillover effects to young millennial talent it’s likely to attract.

Across Asia Pacific, we found the primary reason for the choice of location for technology firms is access to talent.

If you can get your city/suburb/neighbourhood to be the next tech hotspot, agglomeration works and long-term demand will sustain.

Since demand has the potential to be global (smartphone access) and supply very local – specific locations in tech-focused cities will win.

Falling cost of technology to shift transaction costs

This will allow a shift in transaction costs. Information and search costs, bargaining costs, and monitoring and enforcement costs of any exchange have moved fundamentally over the last 10 years.

Digital Business Transformation

Airbnb is a case in point.

Hotels survived because, from a transaction cost viewpoint, they were cheaper than trying to find a room to rent on a short-term basis.

That was until the arrival of the smartphone. Now hotels have to compete on service; location is less of a hold. This will apply to other forms of real estate.

Rise of the ‘co’ economy

Curating communities of co-workers and co-occupants will be the new role in adding value to real estate. Technology reduces the costs of outsourcing and freelancing. In turn, that changes employment patterns and a desire for people to co-locate with like-minded people – whether co-working, co-living, or finding friends and having fun.

The genius of co-working companies is not the real estate space – it’s creating a sense of belonging.

Putting co-working space in unused floors in city centre department stores and malls, and extending multi-occupancy communities online, is a trend to watch.

Capital flows into alternative real estate

Transaction cost reduction through technology also provides the framework to explain the drive into alternatives.

Technology makes splitting out the ownership and use of assets much more efficient than previously envisaged. The ability to price deductions from payment streams or add up payments – similar to additional baggage charges for air travel – will all flow into the real estate world.

Increased flows of capital have driven traditional core office yields lower. Nonetheless, the competition for assets and the volume of capital, combined with technology, has shifted towards it now being cost effective to set up contracts to split ownership and operation of assets.

Real estate will continue to be a store of wealth. Investors will continue to deploy more capital to the sector. Understanding how technology impacts people is the key to generating real estate returns.

Real estate investment trusts are growing in popularity around the world, as investors seek new ways to access an increasingly institutional market. REITs are listed as private funds which are tax-transparent, so investors are only taxed on their dividends.

This puts them on a level playing field with those who hold real estate directly. The Trusts are required to distribute the majority of taxable net income to shareholders and must adhere to certain restrictions on its operations, organisation and ownership.

The security of an institutional regime, low barriers to entry and more liquidity than direct property investment, offer an attractive option for investors. In Russia for example, REITs are attracting high levels of interest as the property market recovers, following a slump in 2014-2016.

Collective investment including REITs schemes have become more popular in Russia as macroeconomic conditions have improved, says Olesya Dzuba, Head of Research, Russia & CIS, at JLL.

JLL Spark, a division of JLL, announced today the creation of JLL Spark Global Venture Fund, which plans to invest up to $100 million in companies focused on leveraging technology to improve everything from real estate development and management to leasing and investing, while enhancing the experience of those who occupy it.

The fund will also help entrepreneurs and their companies by connecting them with JLL’s business lines and clients for insightful feedback and distribution of their products.

“Having been entrepreneurs ourselves, we know how hard it is to bring a new product to market, especially in an industry that has been slow to adopt new technology.

That’s why our goal is to partner with entrepreneurs, and help them tap into the resources of JLL’s business lines so they can succeed in rapidly growing their companies while we also create value for JLL’s clients,”

said Mihir Shah, Co-CEO at JLL Spark.

The new fund will focus on seed and Series A investments, as well as select later stage rounds. Typical investment size will range from a few hundred thousand to several million dollars. JLL Spark will direct its efforts to technology startups with products that can help JLL investor and occupier clients, or that can be used by JLL businesses to better deliver their services.

The fund is also interested in companies that are inventing new technology-enabled business models in traditional JLL service areas or those that will help expand its services to new client segments.

“Creating this $100 million venture fund through JLL Spark allows us to continue to lead the real estate industry in bringing the best proptech ideas to reality. It complements and expands our substantial ongoing investments in innovative, cutting-edge digital solutions, which is a core part of our Beyond strategic vision and commitment to achieve ambitions for our clients,” said Christian Ulbrich, JLL’s Global CEO.

With growth in its core real estate business tied to the country’s economic growth, the company is targeting a larger international presence and a bigger lifestyle play to fulfil its ambitions of becoming a global brand.

“We looked for partners that can help Sansiri grow further, partners that we could learn from in terms of hospitality, lifestyle, technology, innovation, and even in terms of new target audience,” says Sansiri president Srettha Thavisin.

“Importantly, all six investments are in high-growth sectors in global markets which offer new sources of revenue beyond Thailand.”

Do these investments mean a shift away from real estate for the Thai realty firm?

Thavisin says Sansiri’s core business over the next five years will continue to be property development but the firm has realised it needs to meet evolving consumer needs by creating a world-class modern living platform.

“Our next step is to provide end-to-end solutions, the total package of next-generation living. That is why we chose to invest in these lifestyle companies; each brings another piece to the puzzle of complete living. It is a natural extension of our property development business,” he added.

Some of these end-to-end solutions that Sansiri plans to launch with its new portfolio companies are already taking shape. Farmshelf, which provides smart indoor farms, is working to integrate its products into Sansiri’s selective residential projects. Similarly, media brand Monocle and the property developer plan to launch a mixed-use residential concept in Bangkok in 2018.

Sansiri also plans to help Hostmaker, which currently operates in London, Rome, Paris and Barcelona, expand to Asia over the next few years. Similar expansion plans are in the offing for the One Night app that targets same-day stays in handpicked hotels…

DEALSTREETASIA Pte. Ltd. is a news and intelligence platform providing reports on investments, mergers, acquisitions, private equity, venture capital, investment banking and the business of startups across the Asian region.